Retrospective lawmaking is neither new to India nor contradicts global norms, finance minister Pranab Mukherjee said. And while BJP leader, former finance minister and chairman of the Parliamentary Standing Committee on Finance Yashwant Sinha agreed, both leaders have the support of independent analysts. “India is not a no-tax country,” Mukherjee said, two days after presenting his seventh Budget. “It is not a low-tax country. If someone says I will not pay tax, that will not be allowed.”
Singed by accusations of ushering in a command-and-control regime, following a Budget 2012 proposal that classifies controlling interest in an Indian company by a foreign investor as an ‘asset’, Mukherjee said, “Retrospective lawmaking is not new.”
In 1998, he cited, there were nine such cases; in 2008, eight cases; in 2009, five cases; in 2010, four cases and in 2011, two cases. Brushing aside fears of foreign investors retreating, Mukherjee cited China as a case where despite retrospective lawmaking foreign direct investment rose.
“Normally, retrospective lawmaking should not be done,” he said. “But if we did not go for it, it would lead to a huge fiscal pressure. The revenue collected has been appropriated, how will we return that? I cannot create a fiscal crisis.”
Detractors of the process say it is only to collect $2 billion from Vodafone — a case that the government lost in Supreme Court and on which it has filed a review petition — that the law has been inserted in the Finance Bill.
“He (Mukherjee) is right,” Sinha told Hindustan Times. “We have no objection to such an amendment. This is a standard practice across the world. But he could have brought a separate legislation or amendment.”
That would have meant drafting a new legislation, sending it to the Standing Committee and taken time, Mukherjee said. “With the review petition in the Supreme Court, this is the only option I had.”
Analysts agree this is not new. “There are many countries in the European Union that make laws retrospectively,” said Deloitte senior director SP Singh. “Parliaments, across the world, have that authority.”
A post-budget Vodafone statement said, “We do not believe this retrospective change should have any impact on the final judgment handed down in our tax case. We continue to have faith in the Indian judicial system.”